An Apple a Day . . .
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When Jason Crawforth started Treetop Tech Inc. in 1997, he didn't offer employees company-sponsored health coverage.
"We started losing potential employees because [of that]," says the 37-year-old Boise, Idaho, software developer. So in 2000, Crawforth added health coverage to the company's benefits--just in time to catch an astonishing upward spiral in health premiums.
Since 2001, premiums for family coverage have gone up about 78 percent, according to a study by the Kaiser Family Foundation. Meanwhile, wages have gone up just 19 percent, making it much harder for workers to afford coverage. Higher prices also mean that fewer companies are offering benefits. In 2000, 69 percent of firms offered health benefits, but only 60 percent do today. Although future cost increases seem inevitable, entrepreneurs have found some effective ways to rein in rising health coverage outlays.
Tinkering with plans is one method. Every year at renewal time, Crawforth sits down with his insurance agent and tweaks plans for his employees. "We work through various options, [such as] increasing the deductible and changing the physician co-pay," he says. "Then I sit down with the employees and ask them what they want to do.
Wellness programs are another cost-control option. Smoking cessation programs, for example, can cost as little as $900--a small price to pay to lessen the health costs associated with smokers, who average $16,000 more a year in medical bills over a lifetime. At Headsets.com Inc. in San Francisco, founder and CEO Mike Faith provides his 52 employees with healthy snacks, including weekly deliveries of fresh fruit. "I'm a vegan for health reasons, and I'd love everyone else to be, but there's only so much you can do for others," says Faith, 42. "Providing them with healthy food is part of it." Faith also offers employees of the $30 million phone headset vendor subsidized gym memberships and help with smoking cessation, including free nicotine patches. But while he believes the incentives help keep Headsets.com employees healthier, he still hasn't been able to get discounts on his health insurance premium.
Consumer-directed plans, which pair high deductibles with tax-deferred savings accounts for medical expenses, can help you save on premiums. But just 10 percent of companies that provide health insurance offer these plans, according to the Kaiser Family Foundation, and their popularity is greatest with large employers. The low rate of acceptance and a rising tide of criticism are raising questions about how effective they can be. "I think it's a big loser," says Jim Jacobson, partner and chair of the health-care practice at law firm Holland & Knight, of consumer-directed plans. Jacobson worries that making employees pay for their own care will cause many to neglect their health, and in turn, result in increasing illnesses and absenteeism.
Limited medical-care plans, which cover everyday medical expenses like doctor visits but not catastrophic illness and injuries, are also an option for employers. "This is the fastest-growing segment in the insurance industry today," says Derek Peterman, founder and CEO of Century Healthcare, a limited-benefit insurer. Premiums are low enough that middle-class workers and smaller companies can afford them, he says, and higher-paid workers often supplement them with major medical plans to form a plan similar to conventional insurance.
Professional employer organizations can help many small businesses save double-digit percentages on their health premiums. These entities essentially hire an entrepreneur's employees, handling payroll processing and other overhead functions, including health benefits, for a monthly fee. PEOs may employ thousands of people, making them eligible for group discounts from insurers.
Government help may also be available to some companies. Last year, Massachusetts became the first state to require that all citizens have health coverage. As part of the effort, the state persuaded insurers to offer bare-bones plans at low prices. Among the law's other provisions are fines for businesses that employ more than 11 but don't offer coverage. And it lets individuals and companies with up to 50 employees pay insurance premiums with pretax dollars. But Jacobson says the Massachusetts plan mostly benefits the uninsured and unemployed and may still be too expensive for all but young, healthy workers.
Entrepreneurs can expect little immediate help--premiums are expected to rise at about the same rate into the forseeable future. In some cases, the trend may be worsening. For employers relying on HMOs, consulting firm Hewitt Associates says 2008 increases will average 14.1 percent. That's up from 11.7 percent in 2007.
Crawforth feels he must offer health coverage to compete for workers in Boise's tight technology labor market. And while his costs haven't gone up, he's seeing new insurance options, including a plan offered by the national company that processes his payroll. "It's becoming easier," he says. "I'm finding there are more avenues to get health insurance."